Asset Management Role and Responsibilities

Construction & Asset Management Oversight of Development

• This program, from the National Equity Fund (NEF), manages the oversight of construction and asset management during development.
• Session 5 covers risk assessment, rating, and reporting during the development period.
• The program tracks various processes and documents during construction.

Phase I - "Qualified" Asset Manager Program

• Session 1: Introduction to the program (Bob, Carey, Peter)
• Session 2: Documentation and process during the construction period (Baker Tilly, Bob)
• Session 3: Third-party monitors and reports (LM, Bob)
• Session 4: SMT & Box Use, process during construction (Vivian, Bob)
• Session 5: Assessing, rating, and reporting development risk (Carey, Peter)
• Session 6: Working in liaison with CRM (Bob, Vivian, Carey, Peter)
• Qualified Asset Managers (AM) and Development Asset Managers (DevAM) are responsible for oversight during construction with a liaison to CRM.
• There's a defined role for both qualified AMs and DevAMs, with specific portfolio composition and liaison duties.

Today's Outline

• I. Recap: Summary of prior discussions
• II. Coordination with CRM at Closing: Discussion and plan of action for coordinating with CRM
• III. Construction Risk Rating During Development: Review of risk ratings during development
• III. Lease-Up and Stabilization Risk Rating During Development: Risk ratings related to lease-up and stabilization phases.
• IV. Development Risk Power BI Report - Update! Summary and recent updates
• IV. Q and A Question and answer session

Recap (1 of 3): Qualification and Specialization

• Asset Manager: Qualified in development oversight during construction with mixed portfolios (stabilized and non-stabilized projects). Member of Regional asset team and liaison with CRM.
• Development Asset Manager: Specialized in all aspects of development AM, overseeing primarily non-stabilized projects (greater than 50% of portfolio). Member of Regional asset team with strong CRM liaison.
• Example (AM): Monitors a small number of projects potentially already in AM's portfolio under construction.
• Example (DevAM): Portfolio may be mixed (1/3 under construction, 1/3 past PIS but non-stabilized, and 1/3 stabilized)
• Program Goal (2023-25): 50-75% of projects under construction will have Qualified AM or DevAM.
• Specific guidelines for roles and responsibilities of these managers are in place.

Recap (2 of 3): Standard Monitoring Documents

• Periodic Construction Payment Draw Packages
• Contractor's Sworn Statement and Trade Payment breakdown
• Payment Certificate ("G702")
• Change Orders
• Meeting Minutes
• Schedule Updates
• Owner's Sworn Statement/Sources and Uses
• Third-party Construction Monitor's Report
• Coordination with CRM
• Standardized documentation is crucial to track progress throughout the development cycle.

Recap (3 of 3) - NEF AMD Development Risk Ratings

• Current Process: Construction Risk Management risk rates monthly, asset manager risk rates quarterly
• Relying on CRM for updates and ratings.
• Under New Program: Monthly and quarterly ratings covering a portion of projects under construction, with guidance from CRM.
• Projects under construction will be rated by both, and involvement varies.
• A consistent rating system for project phases under development is in place.

Pre-Investment Closing CRM Due Diligence and Coordination

• CRM performs due diligence and mitigates risk prior to investment.
• Initial mission role limited to pre-investment monitoring.
• CRM IRC/Closing Risk Reviews and Recommendations
• (Available during IRC and Closing, uploaded to SMT)
• CRM engages third-party construction monitor.
• CRM determines need based on review (Engages or approves)
• Defined processes for CRM review and coordination before project funding decisions are made.

AHIC Development Risk Rating – Construction Risk

• The overall pre-construction project risk is rated as 3 (C - Moderate)
• Environmental: Low hazardous material levels in existing soil.
• Similar findings to neighboring projects.
• Soil/Site: insufficient bearing capacity for shallow foundations, caissons are being used as acceptable support.
• Addressing soil stability issues is crucial for the project's success.
• Architect & Contractor: Neither NEF nor sponsor has worked with these parties previously.
• Assessing risks associated with unfamiliar parties is a priority.
• Construction Budget: Price escalation for resources like wood and appliances; contingency is only 3% (compared to 5% standard).
• Table 1.0 provides further details and calculations for each risk area.
• A detailed table outlines each risk's severity and probability.

Pre-Investment Coordination CRM Due Diligence & Closing Coordination - The Post-Closing

• PM: Issues from UW closing process
• CRM: Construction Risk and Monitoring Program
• AM: Market, Sponsor, Property Manager, Equity
• ORG: Sponsor, Sensitivity
• Investment Relations: Especially for SIF
• Post-closing coordination is critical for smooth handover between project managers and asset management teams.

AHIC Development Risk Rating - Nuances of Lease Ups and Conversions

• Process: For quick reference in the SMT system, the lease-up schedule screen pulls projected leasing data from the closing spreadsheet.
• Monthly, lease-up tabs should reflect actual progress and be in line with projections.
• Specific processes to monitor construction and leasing are followed.

AHIC Development Risk Rating - Nuances of Post Construction

• Leasing: Project's leasing performance tracked against projections
• Issue detection/corrective action is vital.
• Compliance: Ensuring qualified tenants and meeting minimum set-asides and required credits within the set time frame.
• Construction Loan Maturity Date: Determining if project completion meets loan benchmarks to avoid default.
• Monitoring the loan terms for compliance is vital.
• Perm Loan Rate Lock Expiration: Ensuring a favorable rate lock and appropriate financial support for the new rate.
• Critical aspects of managing the project after completion of construction.

AHIC Development Risk Ratings – Nuances - Stabilization and Conversion

• Stabilization: Ensuring project's ability to meet projected expenses and occupancy benchmarks that will impact conversion, equity or right-sizing.
• Project's ability to financially support and maintain occupancy needs to be evaluated.
• Conversion: Evaluating the time frame for conversion to ensure completion or lease-up is in line with the maturity date of the construction loan.
• Consideration of the ability to financially support/meet construction loan terms.
• Financial: Issues including cost overrun and gap related to interest rate increases or leasing delays will affect the General Partner (GP) fee.
• Detailed processes and metrics are regularly observed.

AHIC Development Risk Ratings – Nuances – PIS & Compliance

• The AHIC system has limited options to accurately detect compliance issues post construction.
• Attention must be paid to delays, leasing issues, and securing credits.
• Accurately evaluating risk and documenting these items is essential. Specific documentation and review process exist.

AHIC Development Risk Ratings – Nuances – Construction Loan Maturity Dates

• Consistent monitoring of construction loan maturity dates is required.
• Key documents to follow include the note and loan agreement.
• Any extensions of dates must be noted, including outside dates like conversion dates.
• Detailed tracking and documentation of loan terms within the project.

AHIC Development Risk Ratings – Nuances – Permanent Loan Rate Lock

• Rate lock risk is currently a primary concern as rates rise.
• Understanding potential increases in interest rates that may delay the development's timeline and need to make adjustments to the loan amount in order to maintain profitability.
• Tracking the loan commitment and adding notes in the SMT is required for monitoring and potential risks.
• Project delays need specific updates on the rate lock and associated impacts (loan adjustment, re-sizing necessary etc).

AHIC Development Risk Ratings – Post Construction - Stabilization and Conversion

• Determining the timing to reach stabilization; ensuring the timeline is within the allocated time frame, per the loan documents.
• Assessing material variances in actual rent/expenses that may affect the stabilization or conversion.
• Following the anticipated timeline for conversion dates and if any extensions were granted or are available.
• Critical indicators tracked actively.

AHIC Development Risk Ratings – Primary Development Risk Categories-Financial

• Financial sub-rating is mostly focused on construction cost overruns.
• Key sources and uses need to be considered for financial viability:
• Construction cost overruns and contingencies.
• Construction loan and payment sources.
• Remaining developer fees with project updates (projections that are right-sized)
• Evaluating source/use imbalances and documenting the information within written reports is important.
• The interim adjuster amount should be included to address investor inquiries.
• Specific procedures and tracking methods exist for financial aspects.

SMT Development Power BI Report

• A visual reporting tool for assessing development risk, tracking projects, identifying delays, and supporting financial analysis.
• The report provides data aggregation across different project phases.

Q&A

• A general question-answer period for clarification, discussion, and resolution of project-related issues.

End of Session Five PPT

• Additional supporting documents/material.

This quiz evaluates your understanding of the roles and functions of a Development Asset Manager. It covers topics such as project monitoring, construction phases, risk ratings, and leasing updates. Test your knowledge on the essential responsibilities and program goals related to asset management.